Empire Online announced yesterday that it has agreed with PartyGaming to settle all outstanding litigation between them and effectively to sell the business and assets of its PartyGaming “skin” activities to PartyGaming in return for a cash payment of $250 million.

Skin activities are operations designed to direct players to one of PartyGaming’s gaming platforms.

All existing contractual arrangements with PartyGaming will be terminated and Empire Online will assign to PartyGaming its interests in certain domain names related to the PartyGaming “skin” activities including “empirepoker.com” and “aceclub.com”.

Empire Online CEO Noam Lanir said, “This transaction removes the uncertainty of litigation between Empire Online and PartyGaming. It puts the company on a stronger footing and will enable management to focus on growing its continuing businesses. We will consider carefully how to use the net proceeds from this sale to the maximum benefit of shareholders.”

Empire Online had a close working relationship with PartyGaming from 2002, when it commenced marketing PartyGaming’s online casino brands. In 2003, Empire Poker was launched under a white label or “skin” agreement with PartyGaming and over time became PartyGaming’s most important poker skin, providing approximately 70% of all players provided under its skin agreements.

Activities related to PartyGaming have remained a source of revenue for Empire Online although revenues have declined materially following the launch by PartyGaming of a new operating platform in October 2005 which moved PartyGaming poker players to a different platform from that of PartyGaming’s skins.

Following the launch of this new platform, Empire Online was approached by PartyGaming in relation to an offer by PartyGaming for the entire issued and to be issued share capital of Empire Online. Following a breakdown of these talks, Empire Online announced that the Directors intended to institute and vigorously pursue legal proceedings against PartyGaming in relation to the launch of PartyGaming’s new platform.

During this process, the directors of PartyGaming and Empire Online entered into mediation. The principal terms of the proposed settlement are:

Both sides to terminate the various “skin” agreements between them.

Empire Online to assign to PartyGaming all rights, title and interest in certain domain names and trade marks associated with those “skin” agreements (e.g. empirepoker.com and aceclub.com).

All litigation and other related proceedings brought by Empire Online against PartyGaming are to be stayed and all claims waived.

PartyGaming will pay Empire Online $250 million in cash on completion in consideration for the settlement of the litigation and the assignment of these assets.

PartyGaming will also pay outstanding commissions owing to Empire Online under the relevant “skin” agreements.

Empire Online stated that following the acquisition of ClubDice and Noble Poker in August 2005, an increasing proportion of new player sign ups and revenue derived from activities not related to PartyGaming confirm that in 2006 such activities should contribute approximately $37 million of net profit.

Empire Online's 2005 gross profit before administrative expenses attributable to the assets being sold was approximately $38.7 million. In the fourth quarter of 2005, the assets contributed gross profit before administrative expenses of $5 million.

Empire Online stated that it will consider the most appropriate ways in which to use the net proceeds of the$250 million, and listed available options such as distributions to shareholders or potential complementary acquisitions.

Published by Globes [online], Israel business news - www.globes.co.il - on Wednesday, February 15, 2006

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